America’s Fiscal Time Bomb

America’s Fiscal Time Bomb

© David Burton 2018

Federal Debt

     “Donald Trump is pitching, as only Donald Trump can pitch, that a major economic revival is energizing America for a new run at greatness, and that he’s the straw stirring the elixir. In one representative recent tweet, the President declared, ‘Our economy is now booming and with all I am doing, will only get better … Our country is WINNING again!’
     “Though ‘booming’ is Trumpian overstatement, it’s undeniable that by many criteria, the President’s agenda is proving remarkably successful. In Trump’s first three full quarters in the White House, GDP clocked growth just shy of his vaunted goal of 3%, a performance that by recent standards looks stellar. The stock market has added a quarter to its value since the election, a $5 trillion vote of confidence. . .
     “Fueling the giddiness is the President’s signature legislative achievement: the Tax Cuts and Jobs Act, which slashed rates for corporations from 35% to 21%. The new law is a runaway hit with business leaders. . .
     “Trump’s heady economic potion, however, is masking misguided policies that could leave those same businesses with a severe hangover from today’s celebration. The U.S. government’s huge and growing budget deficits have become gargantuan enough to threaten the great American growth machine. And Trump’s policies to date — a combination of deep tax cuts and sharp spending increases—are shortening the fuse on that fiscal time bomb, by dramatically widening the already unsustainable gap between revenues and outlays. On our current course, we’re headed for a morass of punitive taxes, puny growth, and stagnant incomes for workers—a future that’s the precise opposite of what Trump champions.
     “By 2028, America’s government debt burden could explode from this year’s $15.5 trillion to a staggering $33 trillion — more than 20% bigger than it would have been had Trump’s agenda not passed. [Emphasis mine] At that point, interest payments would absorb more than $1 in $5 of federal revenue, crippling the government’s capacity to bolster the economy, and constraining the private sector too. Contrary to the claims of the President and his supporters, the U.S. can’t grow fast enough to shed this burden . . . ‘This is almost like climate change,’ says {the} chief economist at Moody’s Analytics. ‘It doesn’t do you in this year, or next year, but you’ll see the ill effects in a day of reckoning.’
     “In the absence of decisive, quick action to tackle this slow-motion crisis, the best-case scenario for the next few years is that America becomes a much riskier place to do business. A high debt load will limit our flexibility to keep the economy on an even course. ‘Countries with high debt don’t respond aggressively to downturns,’ says {a} Harvard economist. If the U.S. slips into recession, we’ll lack the option of lowering taxes or increasing spending . . . as tools to revive growth. And as the debt load grows, efforts by the Federal Reserve to stimulate the economy with lower rates would be more likely to feed runaway inflation. ‘Then, investors will dump Treasuries,’ says . . . an economist at the Hoover Institution. ‘That will drive rates far higher, and make the budget picture even worse.’
     “For now Washington is neglecting the coming crunch [Emphasis mine] . . .
     “. . . even though the problem is far more dire today, policymakers are digging a deeper hole. . .
      - - -
     “Of course, America’s fiscal picture was becoming unsustainable well before Trump took office. What’s astounding is how much worse his tax cuts and spending increases have rendered the outlook, and how quickly. [Emphasis mine]
     “The causes of this menace to prosperity are twofold. First, the U.S. has long chosen to lavish seniors, and to a lesser extent support the poor, with European-style benefits, while borrowing to fund those programs rather than levying European-style taxes. . .
     “According to Congress’s Joint Committee on Taxation, the Tax Cuts act, signed in December, will decrease expected revenues by a total of $1 trillion over the next 10 years, an average of $100 billion annually, even after any boost to growth and incomes from lower taxes. . .
     “The February federal budget deal, meanwhile, hikes outlays in both of the two categories of ‘discretionary’ spending, defense and federal programs from foreign aid to housing subsidies, by an unprecedented 12%, or $150 billion a year in 2018 and 2019. . .
     “All told, the tax cuts and increased spending will raise deficits by roughly $375 billion annually [Emphasis mine] . . . The fiscally responsible path would have been to enact revenue-raisers and spending curbs elsewhere in the budget to fill the gaps. But although the tax bill included some offsets, they were swamped by the sweeping reduction in taxes.
      - - -
     “In a decade, federal debt will reach an overwhelming $33 trillion, the equivalent of 113% of GDP—and $6 trillion higher than the CBO had forecast before the Trump agenda passed. Interest on U.S. borrowings would become the fastest-growing item in the federal budget, more than tripling to almost $1.1 trillion annually. At that point, carrying costs would equal one-half of spending on Medicare, and if inflation or interest rates exceeded the relatively low thresholds in the CBO’s forecasts, the interest bill would soar even higher. ‘That increase represents money the U.S. is just throwing away—that’s crowding out the funding on everything from health care to the military,’ . . .
     “That crowding out has real consequences. The cost of servicing the exploding debt would exert tremendous pressure on the government to eliminate investments that could fuel growth. In the past, spending that modernized highways and mass-transit systems or enhanced higher education has boosted the productivity of America’s workers. That raises incomes, boosts savings rates, lifts consumer spending, and swells savings that fund private investment. The interest burden generated by the mushrooming debt threatens to turn this virtuous cycle into an unaffordable luxury.
      - - -
     “. . . To ensure long-term stability, policymakers will have to do something that’s been almost unthinkable in recent memory—simultaneously cut spending and pump up revenue. [Emphasis mine]
     “The recent fiscal legislation caused negative, structural changes on both the spending and revenue fronts—making the task of keeping the debt in check much harder than it would have been even a year ago.
      - - -
     “A crucial plank in fiscal reform is slowing runaway spending on entitlements, chiefly Social Security and Medicare. Put simply, the nation’s daunting demographic math dictates that the benefit programs keep absorbing bigger and bigger shares of national income. The cohort of Americans over age 65 is expanding much faster than the workforce; from 2017 to 2030, 20 million more baby boomers will reach retirement age, while only 14 million Americans will begin employment. The pool of seniors on Medicare is also getting older, and as a result, sicker. . .
    - - -
     “. . . because we’ve waited so long, even major spending reforms leave a big hole—a chasm that can be filled only by taxes.
     “The longer we wait to enact a solution, the higher the new levies required will need to go. . .
      - - -
     “Indeed, if our politicians finally grow a collective backbone and strive to put America’s finances on a firm footing, the pain will be wrenching. Even though tax increases can be phased in, they’ll still need to start at a high plateau because we’ve waited so long, and they’ll rise from there. America has never seen anything like the kind of tax hikes that could be in the cards. . .
     “. . . On budget matters, the irresistible force of Americans’ love for rich benefits collides with the immovable object of Americans’ resistance to high taxes. As the old Johnny Mercer song goes, ‘Something’s Gotta Give.’ [Emphasis mine] “ (Ref. 1)

     As 2017 came to an end, the U.S. had “the largest debt in the world and one of the largest as a share of GDP.” (Ref. 2) U.S. government debt interest is eating away at the federal government’s revenue – U.S. government debt as a share of revenue today stands at 8.1%, second only to economic basket case Italy (8.3%) in the entire world.[1]

     As I’ve said more than once before, “It’s the Debt, Stupid!(Ref’s 3, 4) And, as I have pointed out relative to the Trump tax plan, “America needs a tax increase, not ‘the largest tax cut in our country's history’ !" (Ref. 3) There will come a day of reckoning. America is faced with a ticking time bomb and our politicians seem oblivious to the danger facing us.

     While Donald Trump boasts that his plan will result in the biggest tax cuts ever for Americans, the reality of America’s indebtedness calls for an increase in America’s tax bill rather than a tax cut. It has become abundantly clear that our Washington politicians have again failed to bite the bullet and do the right thing for America. Instead Congress has continued avoid confronting the fiscal time bomb staring us in the face.

     The American people have waited too long for meaningful action on the growing federal deficit and on much needed tax reforms. The tax plan passed in 2018 does not possess the needed reforms. The longer we wait to address the problem, the larger the bill our children and their children will have to pay down the road, in higher taxes, lower standards of living, or both. That is a cruel hard fact.


  1. Deep in Debt, Shawn Tully,, 1 April 2018.
  2. Remember the Deficit?, Fortune, Page 13, 1 November 2017.
  3. It's the Debt, Stupid!, David Burton,; Article 180, 18 October 2013.
  4. It’s Still the Debt, Stupid!, David Burton,; Article 310, 7 November 2017.


  12 April 2018 {Article 321; Govt_75}    
Go back to the top of the page